IEA Slashes Demand Projections

Today the International Energy Agency (IEA) released their Oil Market Report. While the report is only available for subscribers for the first 2 weeks following the release, reports are already emerging on some of the contents:

Record oil prices put brake on demand growth – IEA

LONDON (Reuters) – The International Energy Agency on Tuesday sharply reduced its forecast for oil demand growth through the rest of 2007 and into 2008 saying oil’s march towards $100 was already slowing consumption.

The adviser to 26 industrialised consumer nations cut its prediction for fourth quarter demand growth by 570,000 barrels per day (bpd) and by 180,000 bpd in the first quarter of 2008.

That will cut the need for OPEC crude by up to 700,000 bpd in the fourth quarter of this year and up to 300,000 bpd in the first three months of next year, the Paris-based agency said in its monthly Oil Market Report.

“…the recent dramatic price rise is having a ‘short-term’ shock effect, at the same time as consumers appear to be adapting behaviour to deal with steady annual price increases,” the report said.

The IEA had already made deep downward revisions to its demand forecast in its October report. In total, the IEA has slashed projected fourth quarter demand growth by nearly 900,000 bpd and cut growth in the first quarter by more than 200,000 bpd.

The major significance there is that the dire warnings of OECD inventories falling to critical levels were based on the IEA’s earlier forecasts. Those projections of critically low inventories (and those projections have been wrong all year long) have helped drive oil prices higher. I haven’t seen any reports of revisions to the IEA’s inventory projections, but the slashed demand should signicantly increase future projected inventory levels. In short, the emergency that many have projected in the near term will be delayed by this latest IEA report.

9 thoughts on “IEA Slashes Demand Projections”

  1. Robert,

    Can you comment on this IEA report? How can these statements mean anything? How can they affect the market? Demand hasn’t changed in any perceptible way; indeed, the prices at the pumps hasn’t even changed much in the last few months. Meanwhile, there are spot shortages around the world.


  2. More on this later. It’s a bloodbath right now with oil on the NYMEX. Bet folks are wishing they had sold a few days ago. I am wishing I had shorted a few days ago.

  3. I told you all to buy puts…do you listen? Noooooooo.
    You can still buy puts further out. I think oil may sink all the way back to $60. Buy some $40 puts dec 2008.
    “Peak Demand” I have been crying about it for months, maybe a year.
    I think 2007 is the year of Peak Demand, From here on, we see annual declines in oil demand, perhaps for 10 years straight, though small annual declines each year, on the range of 1 percent to 2 percent. The cumulative effect will be terrific.
    By the way, I lost my shirt playing oil futures this year, was “too early.’ I like to lump my myself with Soros and Buffett, in that they both made calls way too early (Buffett, the market in late 1990s, and Soros on the dollar). I like to justify myself by saying I saw things too early, and thought everybody would see them too. In truth, I am a poor specualtor, and forgot the rule that bull markets do what they want, not what makes sense.
    To repeat: World oil demand was up 3.1 percent in 2004, then 1.4 percent in 2005, then 0.7 percent in 2006. Why did anybody think 2007 would be different? (BP stats).
    Why would demand rise at all, given the prices?
    This is good news. And still wonderful innovations are being introduced as we speak. The real reductions in demand are ahead. The PHEVs, the amazingly efficient lighting systems, the “green” buildings which consume about 1/2 the power they would otherwise, w/o green technology. It is coming, and already here in many cases. Just a matter of time, for older technologies to wear out and be replaced.
    There is even a chance cellulosics will work, or second-gen corn-ethanol plants make sense (the E3 plant).
    This is the truning point, Right here. Do not expect to see much higher oil prices for another generation at least. Oh, maybe we hit $100 on a war etc. But this is the like $45 a barrel back in 1979. The turning point.

  4. Gee, price goes, people reduce consumption. Econ 101 anyone?

    When people talk about encouraging conservation, they understand this, and suggest higher taxes.

    But when they’re projecting the consequences of rises in the price of oil, they think oil use is totally inelastic.

    Corn-ethanol is losing momentum, as people realize that it’s pushing up food prices and stressing water supplies. All of the biofuels have scaling issues, corn-ethanol is just showing them first.

  5. I told you all to buy puts…do you listen? Noooooooo.

    My situation is a bit more complicated. Two times in the past couple of weeks, I could have made a lot of money. I heard about the evacuation in the North Sea a good 24 hours before it hit the news. I felt like there was a 90% chance oil would pop up, and it did. But I can’t trade on that information, as I would guess that would be classified as inside information.

    Then, when I read about how many speculative longs have to liquidate by Friday, I thought there was a very good chance that there would be a fire sale. That wouldn’t have been inside information, but I think if I traded commodities I would constantly have to defend against those kinds of charges.

  6. Robert – yes you would have been compelled to report any trading gains or losses on your annual ethics disclosure. I doubt it would have been a big deal, even the north sea news.

    WTI down $3.31. Looks like the $100 longs are sinking fast.

  7. Volatility is the name of this game. Down in the short run, look out later. This info pushing down could be mostly hype. Demand ‘slashed’? Aramco’s unverifiable statements. Spot shortages around the world don’t equal ‘demand destruction’ but supply problems. Any hype and lies will just make price more volatile.

    Bring it back to the real world. Anyone you know driving less?

  8. Coldclef-

    In fact, in California, people are logging less miles, and also buying higher mpg cars. Jeez, the Prius is a status symbol………
    we need to keep the pressure on with gas taxes…doubt we will………..
    Oil down nearly $5 now…a full-on rout….
    where is the bottom? Mayvbe $60, maybe even $40, once it starts going the other way…look out….
    the thing about demand, is that once it starts contracting, it does not go up again, just because prices moderate a bit…it is inelastic on the downside too….the smaller cars, the efficient buildings are in place….the better bulbs can be bought….new technologies were commercialized at lower rice points…
    look out below, it could be a looooonnnnggggggg way to the bottom….

  9. Bring it back to the real world. Anyone you know driving less?

    My family is driving less and using less gasoline. Our big SUV sits in the garage while I drive a fuel efficient car. Early next year I’m trading up to a vehicle that gets nearly twice the mileage.

    Although it doesn’t impact crude oil, our electricity usage is down 12-15% from last year.

    Spot shortages around the world don’t equal ‘demand destruction’ but supply problems.

    The shortages are in countries where oil is still subsidized, like China. These subsidies distorted the market.

    How do we know that the current $90 prices aren’t just hype? Crude was selling a year ago for $50. Demand is flat in the US (1/4 of the market) and up only slightly everywhere else. Now we find out supply is up too.

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